United Overseas Bank Ltd., Singapore’s third-largest lender, is planning a sale of dollar-denominated bonds as Asia’s investment-grade issuers pay the least for debt in the U.S currency in almost three years.
UOB, which is rated AA- by Standard & Poor’s, the company’s fourth-highest grade, hired banks for an offering of subordinated notes, a person familiar with the matter said today, asking not to be identified because the terms aren’t set. Yield premiums on securities graded the equivalent of BBB- or higher by S&P slid to 190.5 basis points last week, the lowest since April 2011, according to JPMorgan Chase & Co. indexes. Investment-grade borrowers pay 41.5 basis points more than Treasuries for dollar notes globally, Bloomberg indexes show.
HSBC Holdings Plc was the last high-grade Asian issuer to sell dollar-denominated bonds, pricing $300 million of floating-rate notes on March 7. The region’s banks have sold $8.38 billion of debt this year, 26 percent of total dollar issuance, data compiled by Bloomberg show. South Korea’s Shinhan Bank, rated A by S&P, is considering a transaction as it plans to meet investors in Asia, Europe and the U.S. from March 13, a separate person said today.
“Asia still offers a considerable spread pick-up compared to U.S. investment-grade names,” said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia Ltd. “Strong demand from global investors, minimal supply from Asian investment-grade issuers and last week’s rise in Treasury yields, which meant investors focused on total return were satisfied with lower credit spreads, are driving spreads tighter.”
Yields on 10-year U.S. government debt rose 14 basis points last week, the most since September, to 2.79 percent.
Bonds sold by BBB rated Chinese developers outperformed Asian investment-grade debt last week, with spreads tightening about 20 basis points, Goldman Sachs Group Inc. said in an e-mailed note dated March 8. Spreads on top-rated bonds sold by Indian issuers contracted about 5 basis points, analysts led by Hong Kong-based Kenneth Ho wrote.
The cost of insuring Asian corporate and sovereign bonds from default rose from the lowest level in more than two months today, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan added 2 basis points to 127 basis points as of 8:31 a.m. in Hong Kong, Westpac Banking Corp. prices show. The gauge is set for its first day of increases in a week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Australia index gained 1 basis point to 102.5 basis points as of 11:22 a.m. in Sydney, according to National Australia Bank Ltd. The benchmark is on course for its highest close in a week, according to data provider CMA.
The Markit iTraxx Japan index was little changed at 75.5 as of 9:24 a.m. in Tokyo, Citigroup Inc. prices show. The measure has fallen 1.2 basis points this month, according to CMA.
Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.